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Replacing performance ratings… How Amazon, Deloitte and Google do it

Performance ratings and, more generally, performance appraisals have long been a source of frustration for all concerned. We’ve seen a number of big companies lead the way in ditching traditional appraisals and performance ratings in favour of a variety of different processes.

If you organisation is considering a similar transition in how to measure employee performance, it is well worth doing some research first. However, while asking “how do others run employee appraisals?” may provide some inspiration, ultimately you’ll need an approach that fits your business and culture.

First, the problem with traditional appraisals

How long have you got? There are many – both from managers and employees. These include having lengthy appraisal forms to complete, no easy way of tracking milestones, and perceptions that the appraisal meeting is a simply a checkbox exercise. Not to mention the struggles for managers using performance ratings and the perceived unfairness of these, for employees.

So, who’s doing what?

To provide some ideas and possible inspiration, we look here at case study examples from six big companies who’ve moved away from relying solely on performance ratings.

ACCENTURE

Accenture completely scrapped their ratings system several years ago. Instead, they’ve opted for a “more fluid system, in which employees receive timely feedback from their managers on an ongoing basis following assignments”.

Pierre Nanterme, CEO of Accenture, has brought in a new focus on leadership and, in the process, initiated a move away from micromanagement. His fundamental belief here is that, if a business hires the right people into the right roles, then a rigorous performance management process shouldn’t be needed. He explains:

“The art of leadership is not to spend your time measuring, evaluating… It’s all about selecting the person. And if you believe you selected the right person, then you give that person the freedom, the authority, the delegation to innovate and to lead with some very simple measure.”

ADOBE

Adobe discarded performance management forms and questionnaires and now doesn’t have a formal rating or ranking system. They expect managers and employees to undertake a continuous process of feedback and improvement (known as ‘Check-In’). The process isn’t documented or recorded in any way, and there is no formal written review.

Their approach is shaped by three underlying principles:

1) Managers are to convey clearly what is expected of each team member
2) Everyone is expected to give and receive feedback in a constructive way
3) Check-In should provide opportunities for professional AND personal feedback

AMAZON

Amazon has a reputation as a high performance, high challenge organisation. It’s no surprise then that this extends to how they evaluate employees’ contribution. The feedback system at Amazon, which they designed themselves, is intended to push the limits of each employee. They hold weekly or monthly business reviews, where each employee is held accountable for an array of metrics. There are even reports, including in the New York Times, that employees receive this data in print form of 50 to 60 pages!

Furthermore, and in line with their more data-driven approach, Amazon organizes Organization Level Reviews, where top and bottom performers are presented to the board of managers to inform bonus and firing decisions. This has strong parallels with the traditional ‘rank and yank’ bell-curve.

Amazon also uses their ‘Anytime Feedback Tool’ for enabling feedback available between employees. Using this, employees can directly send praise or criticism about their co-workers. Feedback is sent directly to the manager of the person receiving the feedback and the identity of the feedback provider is only revealed to them (never to the feedback recipient).

DELOITTE

Deloitte has focused on simplifying its performance management process. All managers answer four future-focused statements about every team member, at the end of every project (or once per quarter for long-term projects).

These four statements, together known as a ‘Performance Snapshot’, are as follows:

1) Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus. This features a five-point scale from “strongly agree” to “strongly disagree” and measures overall performance and a person’s unique value to the organization.

2) Given what I know of this person’s performance, I would always want him or her on my team
This uses the same five-point scale and measures ones’ ability to work well with others.

3) This person is at risk for low performance. Using a yes/no responses, this identifies problems that might harm the customer or the team.

4) This person is ready for promotion today. This asks for a yes/no response, measuring potential.

The Performance Snapshot is complemented by regular ‘check in’ conversations between managers and staff.
Deloitte steers clear of using the term ‘rating’, citing the fallibility of rating systems – principally those giving ratings. Their own research in this area has undoubtedly influenced Deloitte’s approach. Their aim is to make it as easy for managers as possible to assess performance. A further business driver was to save time and money since their previous approach reportedly saw around two million hours spent on form filling, meetings and arguing back and forth over ratings.

GOOGLE

Google abolished its purely numerical performance rating system in 2014. This has been replaced by a peer review system, which is all geared around objectives and key results or (OKRs).

Carried out semi-annually, peer reviewers are asked to state one thing the reviewee should do more of and one thing that they could do in a different way.

After the feedback cycle, managers meet to look at these peer reviews. They then decide on where a person sits on their five-point scale where five is “superb” through to one “needs improvement”. The aim of this collaborative, committee style approach is to prevent feedback bias by asking managers to justify their decisions to one other.

Managers at Google are informed about potential obstacles to objective feedback. And, keeping these obstacles in mind, they decide on the final evaluation of an employee. Assessment summaries are shared half-yearly and compared to a set of examples to justify the evaluation.

NETFLIX

Netflix don’t use performance reviews per se. They have yearly 360 reviews, where everyone in the company can provide feedback to anyone else. As a minimum, the company likes people in a team to give feedback to their team co-workers, manager, and – if they have people reporting to them – their direct reports.

Reviews are ultra-simple with just one text box where people can write anything they want. While there are no metrics or guidelines, most people use a start/stop/continue format (start doing X, stop doing Y, continue doing Z).

Interestingly, and in line with the ‘grown up’ culture Netflix adopts, any review submitted will have the reviewer’s name attached to it – nothing is anonymised. Reviews are also automatically shared with the manager of the person being reviewed, as well as their HR partner. This is intended to encourage a learning and feedback culture. These 360 reviews are treated as entirely separate from compensation reviews.

In addition, Netflix managers use a ‘keeper test’ to evaluate employees. This simply poses the question:

“If one of your employees told you he or she was leaving for a job at a peer company, would you fight hard to keep that employee at Netflix?”

If the answer is “no,” then Netflix will exit that person. Or, as it’s put in the company’s now famous ‘Culture Deck’:

“Sustained B-level performance, despite ‘A for effort’, generates a generous severance package, with respect.”

Pretty brutal, no doubt. But it seems to have worked for them.

A note of caution…

I think we call all agree that traditional appraisals no longer work for many organisations, and that there are a number of better ways to ‘do’ appraisals and measure employee performance. However, given the fundamental importance of this process it’s crucial that you ensure that your people are prepared for any radical changes. Here are a few things for HR teams and management to consider:

  • Do managers and employees have the skills (i.e. giving and receiving feedback) needed to make the proposed new process a success?
  • Are senior leaders ‘bought it’ and will they role model the new approach from the top?
  • Do you have/need new systems and/or processes to enable the change of approach?
  • Have you considered how you’ll explain the reason for the change to your people?

As with any business change initiative, good and open communication with internal stakeholder groups is a must. Doing this will help you to shape the new approach to ensure it is fit-for-purpose, which should result in increased buy in when it is eventually rolled out.

Now consider: Drive high performance with score cards like Apple and Microsoft use

References
Michael Mount, Steven Scullen and Maynard Goff, published in Journal of Applied Psychology (2000)
http://www.rc.usf.edu/~jdorio/Performance%20App/Scullen,%20S.%20E.,%20Mount,%20M.%20K.,%20&%20Goff,%20M.%20(2000).pdf

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